Nene had come under increasing pressure to resign after testimony at an inquiry into alleged instances of state capture that took place during the term of the former president, Jacob Zuma. At this inquiry, Nene admitted to meeting the controversial Gupta family more frequently than he had previously suggested. Nene has denied any wrongdoing, and indeed claims to have been sacked by the then president, Jacob Zuma, for refusing to approve a USD100bn nuclear power deal with Russia in 2015. However, his admission of multiple meetings with the Guptas has proved damaging to his credibility with foreign and local investors. Political opponents would likely have sought to portray retention of the finance minister as undermining the anti-corruption pledges of the current president, Cyril Ramaphosa--particularly as the two men are close political allies. In this context, Ramaphosa clearly felt the need to replace Nene, and Mboweni is perceived as a "safe pair of hands" given his strong record as a previous governor of the South African Reserve Bank (SARB) and as labour minister--including piloting the Labour Relations Act.

What's Next

There is unlikely to be a radical shift in fiscal policy on the back of Mboweni's appointment. The new finance minister's first key task will be to present the mid-term budget statement on October 24. However, he is unlikely to have substantial input as, by this stage, most major decisions on the direction of fiscal policy have likely already been taken. In terms of investor sentiment, Mboweni's appointment is likely to boost confidence, at least in the short term, given his track record as SARB governor--as underscored by the fact that the rand strengthened by 1.3% to ZAR14.65/USD in the wake of his appointment. However, fiscal constraints are likely to limit the new finance minister's room for manoeuvre in the medium term, while there is also a clear risk that the ruling African National Congress will move to the left in terms of rhetoric and policymaking in the run-up to the 2019 general election.

Related Research:

- Stimulus No Panacea For Struggling South African Economy, September 25

- 2019 General Election Will Heighten Risks To Investment Environment In South Africa, October 1